First Quarter 2013/14 expenditure patterns for National Departments: National Treasury briefing

13 August 2013

Chairperson: Mr E Sogoni (ANC)

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Meeting Summary

The National Treasury briefed the Committee on expenditure by national departments in the first quarter (Q1) for the 2013/14 financial year. The expenditures were shown in graphs and the summary of each graph was presented. The figures presented included cumulative revenue and expenditure, expenditure on direct charges against National Revenue Fund, voted expenditures on operations for the 2013/14 financial year, voted expenditures on administration for the 2013/14 financial year, voted expenditure on transfers for the 2013/14 financial year, and the expenditure against scheduled drawings.

A DA Member noted that the Department of Water Affairs expenditure had been very low. A second DA Member asked if the set goals and targets had been achieved, and if the expenditures presented to the Committee spoke to the National Development Plan (NDP). An ANC Member wanted some clarity on the largest increase of funding. A COPE Member wanted clarity on the student loans and bursaries, and on the National Treasury’s engagement with the Department of Water Affairs. The Chairperson wanted clarity on State Debt payment of R19.5 billion, capital assets and capital expenditure, DBSA’s recapitalisation, the national government financial year and local government financial year, and Passenger Rail Agency of South Africa funding. He noted that it was good to ask if there was value for money. However, the Committee needed to ask relevant people from all government departments. There was a need for a broader discussion on Department of Water Affairs spending. From the oversight visit undertaken by the Committee, it was reported that the Department had an internal construction unit, but Members did not know about the unit and its processes. He then suggested that it would be important for the Committee to understand the implications of that unit.

Meeting report

Introduction
The Chairperson welcomed the National Treasury. He noted that in terms of the Public Finance Management Act (PFMA) (No. 1 of 1999), the Director-General (DG) was supposed to come and present. He then asked why the DG was not present. National Treasury replied that it understood that it was going to present on the monitoring work of all the departments; therefore it was not necessary for the DG himself to be present.

National departments’ 1st quarter 2013/14 expenditure patterns: National Treasury briefing
Mr Andrew Donaldson, National Treasury Deputy Director-General: Public Finance, said that the presentation consist of graphs and a summary of expenditures. Graph one on slide 2 showed the breakdown of cumulative revenue and expenditure quarter 1 of the 2013/14 financial year. According to the graph, the main budget in quarter 1 (Q1) was estimated to had been R198.7 billion, the total expenditure in Q1 was R235.7 billion, which implied a budget deficit of R37.1 billion for the quarter. Graph two on slide 3 showed a breakdown of Quarter 1 (Q1) for the 2013/14: direct charges against the National Revenue Fund. According to graph two, 45% of the total expenditure was for direct charges against the National Revenue Fund, which was equivalent to R107.1 billion, and it included R84.4 billion transferred to provinces under the equitable share agreement, and R19.5 billion was to pay State Debt costs.

Mr Donaldson said that the third graph on slide 4 showed the breakdown of voted expenditure quarter 1 for the 2013/13 financial year. According to the graph, total voted expenditure was R128.6 billion, and 67%, or R86.5 billion of that was transferred by departments to households, other spheres of government or other organisations and agencies, and 33% or R42.1 billion was directly spent by departments on operations, mostly on compensation of employees. The fourth graph on slide 5 showed voted expenditure Q1 for 2013/14 financial year on operations. According to the fourth graph, operational expenditure increased compared to the same period in previous financial year by R6.6 billion - a nominal growth of 18%. R27.7 billion was spent on Compensation of Employees, and R10.3 billion was spent on goods and services. The growth of 14% and 12% experienced was an increased growth. The growth rate was mainly for wages and equipment for police, defence, correctional and justice services.

Mr Donaldson said that graph five on slide 6 showed the continuation of voted expenditure Q1 for 2013/14 financial year on operations. The graph indicated that R1.4 billion was spent on Capital Assets, representing a decrease of 16%. The decrease was mainly as a result of slower spending on the criminal justice sector revamp and modernisation programme under the Department of Justice and Constitutional Development than in the previous year. The larger portions spent were under the Department of Police for the criminal justice revamp, and modernisation and upgrading of police stations programme, and under the Department of Water Affairs for the regional bulk infrastructure projects. Graph six on slide 7 showed the voted expenditure Q1 2013/14 financial year on operations where R2.7 billion was spent on financial assets, which was a growth of 767%: this was under the National Treasury for the recapitalisation of the Development Bank of Southern Africa (DBSA). Graph seven on slide 8 showed the voted expenditure for Q1 2013/14 financial year on operations by all government departments.

Mr Donaldson said that graph eight on slide 9 was a breakdown of voted expenditure for Q1 2013/14 financial year on administration. The amount of R9.1 billion was spent on administration, representing 22% of operation expenditure primarily to support Police, Defence, and Correctional Services, and the average percentage of operational expenditure spent on administration per department was 40%. The Presidency and the departments of Sport and Recreation South Africa, and Women, Children and people with disabilities spent over 70% of their operational budgets on administration. (Slide 9)

Mr Donaldson said graph nine on slide 10 was a breakdown of voted expenditure Q1 2013/14 financial year on transfers. It was reported that a total of R86.5 billion was transferred by departments, representing growth of 8%. 30.9 billion was transferred to households, representing growth of 12% mainly for social grant payments which was driven by an increase in beneficiary numbers and inflationary adjustments for social grants. Graph ten on slide 11 showed the breakdown of voted expenditure Q1 2013/14 financial year transfers. According to graph ten on slide R18.6 billion was transferred to provinces and municipalities, representing reduction of 1%, and the significant areas of expenditure included the following, namely: the Department of Health grants included those for HIV and AIDS, and National Tertiary Services; Basic Education for Education Infrastructure and the National School Nutrition programme; Transport and Human Settlements, roads and public transport projects and the Human Settlements Development Grant respectively.

Mr Donaldson said that graph eleven on slide 12 showed the breakdown of voted expenditure Q1 2013/14 financial year on transfers where R18.9 billion was transferred to Departmental Agencies and Accounts representing an increase in 8%. Agencies which received the largest sums were, namely: National Student Financial Aid Scheme (R2.9 billion) for student loans and bursaries; South African National Roads Agency received R2.6 billion and the South African Revenue Service (SARS) received R2.3 billion. Graph twelve on slide 13 showed the breakdown of voted expenditure Q1 2013/14 financial year on transfers where R10.9 billion was transferred to higher education institutions representing an increase of 5%, and the vast majority had been for the block grants to universities. Furthermore, the amount of R5.8 billion was transferred to public corporations and private enterprises representing an increase of 11%, and the significant recipients included the Passenger Rail Agency of South Africa (PRASA) which received the amount of R2.5 billion. Graph thirteen on slide 14 showed the overall voted expenditure Q1 2013/14 financial year on transfers to all government departments.

Mr Donaldson said that graph fourteen on slide 15 showed the breakdown of expenditure against scheduled drawings which represent the funds that the exchequer was made available to departments on a monthly basis, and the total expenditure was well within the total scheduled amount. The Department of Defence, however, needed to spend over and above its scheduled drawings by R287 million in the first quarter to cover for the salary adjustments affected in April this year.

In concluding, Mr Donaldson said that the 2013/14 Q1 national expenditure indicated the following, namely: a budget deficit of R37.1 billion for the quarter, R19.5 billion spent in quarter 1 on State Debt costs, a total increase in expenditure of R22.0 billion or 10% when compared with Q! 2013/14, operational expenditure increased by R6.6 billion or 18%, and funds transferred increased by R6.5 billion or 8%. The total expenditure was within the total scheduled available amount, although the Department of Defence spent R287 million more than scheduled to cover increase in compensation packages effected in April this year.

Discussion
Mr M Swart (DA) noted that the Department of Water Affairs expenditure had been very low.

Ms R Mashigo (ANC) noted that the presentation was very good, and wanted some clarity on the largest increase of funding.

The Chairperson wanted clarity on State Debt payment of R19.5 billion, capital assets and capital expenditure, DBSA’s recapitalisation, national government financial year and local government financial year, and PRASA funding.

Mr L Ramatlakane (COPE) wanted clarity on the student loans and bursaries, and he then asked if there was any progress and compliance. He then wanted clarity on the spending of over 70% of operational budgets of the Presidency, the Department of Sport and Recreation, and the Department of Women, Children, and People with Disabilities on administration (slide 9), and the National Treasury’s engagement with the Department of Water Affairs.

Dr S van Dyk (DA) apologised for being late. He noted that money had been allocated to departments for certain goals and targets. He then asked if the set goals and targets had been achieved, and if the expenditures presented to the Committee spoke to the National Development Plan (NDP).

The Chairperson noted that it was good to ask if there was value for money. However, the Committee needed to ask relevant people from all government departments.

Mr Donaldson replied that, on capital spending, there was a need for expansion of the scope of what was in the presentation to include public spending. The presentation only covered the voted expenditures, not any specific relevant projects such as the water project. There was not really full public spending in the presentation, but transfers for 2013/14 financial year were covered in the presentation. The whole of the water sector needed to be looked at more closely in order to understand water spending. DBSA had been recapitalised and other entities could be recapitalised if there was a need. The SARS amount was an ordinary tax collection, and the R19.5 billion of State Debt was not for the whole year. PRASA was commuter rail that relied on the fiscus. Expenditure on administration could be streamlined, and so far the National Treasury was improving the expenditure on administration. 70% of the operational budget on administration referred to the budget of the full year. From the presentation, the breakdown of student loans and bursaries were well balanced, although the recovery of student loans were not quite 100% because of their concessional nature and the student fund programme was still well run.

Conclusion
In concluding, the Chairperson suggested that there was a need for a broader discussion on Department of Water Affairs spending. From the oversight visit undertaken by the Committee, it was reported that the Department had an internal construction unit, but Members did not know about the unit and its processes. He then suggested that it would be important for the Committee to understand the implications of that unit. The National Treasury was thanked for its presentation, and it was announced that on 20 August 2013 the Committee would meet with the Department of Basic Education to discuss the Accelerated Schools Infrastructure Development Initiative (Asidi).